October 7, 2005 | Volume 2, Issue 2
Child Care Subsidies in the Context of Welfare Reform
Making Low-Income Women Better Off?
Abstract
This paper provides an analysis of the effects of child care subsidies on low-income and poverty-level families, with an emphasis on female-headed families receiving welfare benefits. First, the history of federal financing of child care is explored, and is followed by a discussion of the current policy enacted during the extensive welfare reforms of 1996. The paper surveys studies that have explored the link between child care subsidies and parental employment. While the numbers differ from study to study based on research parameters, the vast majority of studies have shown that there is a significant increase in employment when subsidies are implemented.
General employment statistics alone are not a sufficient metric of the effectiveness of child care subsidies. Instead, it is essential to move beyond that link to look at the breadth and depth of the child care subsidy policy. Specifically, how widely do childcare subsidies reach those families who are low-income or below the poverty line? Many people for whom child care costs are a huge burden do not receive relief, either because they are ineligible according to federal or state provisions, or because they do not apply. This paper explores the various reasons why those who are eligible would not be receiving funds. The depth of these policies and how well the subsidies do at improving the economic situation of those who receive them are examined. Finally, policy recommendations aimed at improving the use of child care subsidies are offered.
One of the limitations to this analysis is that the many relevant studies often use different qualifications for their data sample. This paper addresses primarily single mothers who are welfare recipients. Mothers who are married and working often face child care dilemmas as well, particularly given that cultural expectations place the majority of the burden of child care on women. However, single mothers face the dual dilemma of taking care of their children and supporting them financially. On a more practical level, almost half of all female-headed families live below the poverty line, and so there is far more research available to address their predicament. The focus on welfare recipients is due to the fact that child care subsidy programs are required to give priority to welfare recipients. Additionally, the effects of child care subsidies on welfare recipients were studied in greater numbers than the effects on low and middle income families.
The following history of federal support for child care subsidies provides an important context for understanding the political factors affecting childcare subsidies. A long-term viewpoint also gives valuable insight on the breadth, depth, and overall effectiveness of government funding for child care. Lastly, the majority of data available for the effectiveness of childcare subsidies comes before the effects of the 1996 welfare reforms were fully implemented. Therefore, it is essential to place the research findings in the context of the policies that were in place when the studies were conducted.
A History of Child Care Subsidies: The Politics and Policies
While childcare programs have been a fixture in American life since the late 1800s, the federal government was entirely uninvolved in them until 1933, when the height of the depression made child care a necessity for many Americans. The governmentâs initial hesitancy and eventual acquiescence can be understood in relation to competing values upheld in American culture and the American form of government. First, there is the ideal of individualism and minimal government intervention in the lives of private citizens. A 1930 report from the White House Conference on Children stated, ” No one should get the idea that Uncle Sam is going to rock the baby to sleep.” [1] The attitude was that child rearing was a private affair in which the government had no responsibility and should not interfere.
However, by 1933, the height of the Great Depression, rugged individualism had taken a backseat to the struggles of a nation with an unemployment rate that was upwards of twenty-five percent. As a part of Franklin Rooseveltâs New Deal, six million dollars in funds for the Works Progress Administration (âWPAâ) were set aside for an emergency nursery school program. The program served 44,000 to 72,000 children each year, and by 1938 its funding had climbed to $10.7 million. It is important to note that children of families on ” home relief,” an early version of Aid to Families with Dependent Children, were eligible for the program. [2]
In 1940, with the U.S. on the brink of entering into World War II, Congress passed the Lanham Act, which authorized federal grants and loans to agencies for the operation of child care families in war-impacted areas. The legislation shifted $6 million of WPA funding to this program, thus funding the children of working mothers rather than focusing exclusively on the children of home relief families. This program was in operation for four years, and despite serving over 600,000, is estimated to have reached only 13 percent of children needing child care. [3] When the war ended and women were strongly encouraged to return to their domestic duties, the program ended. Eleanor Roosevelt said in retrospect, ” Many thought [the centers] were purely a war emergency measure. A few of us had an inkling that perhaps they were a need which was constantly with us, but one that we had neglected to face in the past.” [4]
With the notable exception of President Lyndon Johnsonâs Head Start [5]program, federal financing for child care remained relatively stagnant over the next twenty-five years. In 1971, Congress passed the Comprehensive Child Development Act, which dictated that comprehensive child development programs were a right for all children, and provided $2 billion in government support for such programs. President Nixon supported child care in rhetoric, but ultimately vetoed the bill, largely to placate constituencies that were opposed to his policies in China. [6] Three years later, Title XX of the Social Services Amendments provided $715 million per year for childcare, less than half of what the Comprehensive Child Development Act had allotted. Additionally, from 1974 to 1994, Title XX funding would decrease by 58 percent in real dollars. [7]
This trend continued in the 1980s under the Reagan Administration. In 1981 Congress approved the Social Services Block Grant, which decreased the amount of money paid out under Title XX to $2.4 billion, and the portion of the grant that was allotted to child care was drastically reduced because other programs, such as foster care, were deemed more important. The Family Support Act of 1988 mandated that welfare recipients had to participate in education, training, or work, with the understanding that participation was not required if child care was unavailable. [8] The child care subsidies which were granted were focused on getting parents to work, and were only guaranteed during work hours. However, given that many welfare recipients work jobs with irregular or evening hours, this type of subsidy was not uniformly valuable to all those who were eligible for it.
The 1970s and 1980s was a time period that saw what some scholars refer to as the ” feminization of poverty.” A study by McLanahan et al showed that womenâs poverty rates in 1950 were 10 percent higher than men, but by 1980 they were 50 percent higher. In 1976, two-thirds of poor adults were women, and female-headed families were increasingly falling behind families with an adult male present. [9] The trend can be explained by the increase in young mothers who have never been married vis-Ã -vis older mothers who were married and then either widowed or divorced. Non-marital births occurring to parents who were younger meant that these parents had lower earnings than parents who divorce, and thus the child support payments required of the father are lower, as are the motherâs earnings. When this was coupled with a poorly enforced system for child support payments, the rise in poverty among female-headed households becomes easily understandable. By the 1990s, the majority of families receiving welfare were headed by females. [10] Political pressure began to build for the government to enact policies, such as the 1988 Family Support Act described above, that were designed to make subsidies conditional on employment or education.
The last major set of changes to child care subsidy policy prior to the 1996 welfare reforms was the 1990 Child Care and Development Block Grant (CCDBG) and Title IV At-Risk Child Care. This legislation was aimed at low-income parents, and emphasized parental choice, as well as minimum health and safety standards for child care facilities. The CCDBG in particular targeted families covered under the Aid to Families with Dependent Children (AFDC) program. The CCDBG required no matching funds from states, while Title IV did. Title IV was also limited to the working poor: people who were at risk for becoming eligible AFDC funds. [11] This would be the last major adjustment to the system before the comprehensive welfare reform of 1996.
PRWORA: The 1996 Reforms
The most recent major legislation on child care subsidies came as part of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This legislation, drafted by the Clinton Administration and passed by a Republican Congress, emphasized a ” welfare to work” approach to poverty. Blank, in an article on fighting poverty, states that if the 1960âs and President Johnsonâs Great Society initiatives created a ” War on Poverty,” then, the 1990s and the Clinton reforms created a ” War on Welfare Dependence.” [12] The legislation set limits on how long a person could receive federal assistance (sixty months total over the course of a lifetime), and mandated that welfare recipients be employed or enrolled in some type of job training or education program. It consolidated the previous multiplicity of programs and grants in an attempt to overhaul the fragmented subsidy system of the past, in part so that families would not have to switch from one program to another as their situation changed. [13]
PRWORA established Temporary Assistance to Needy Families (TANF) block grants, which would be provided to states. It established the Child Care and Development Fund (CCDF), which allows parents who qualify for TANF assistance to receive child care subsidies. The CCDF also served the purpose of consolidating previous legislation, as detailed under the Social Security Act. Rather than distributing child care subsidies in the AFDC/JOBS Child Care, Transitional Child Care, and At-Risk Child Care, the CCDF was established and Mandatory and Matching Funds were appropriated for Fiscal Years 1997 through 2002. The appropriations for the Funds were later extended through March 31, 2005. When these funds, which make up the CCDFâs Child Care and Development Block Grant, were extended, they were renamed the Discretionary Fund, to signal the fact that the money must be allocated annually by Congress. [14]
This grant money is distributed to the states. The amount that a state received in Mandatory Funds is based on the share of funding it received from the former child care funds, including AFDC/JOBS Child Care, Transitional Child Care, and At-Risk Child Care. In contrast, Matching Funds are provided to states on the basis of the number of children under age 13 in that state as compared to the number of children under age 13 residing in the country as a whole. In order to receive matching funds, a state must provide funds at the current rate and in the given year in which the funds are awarded. There are considerable statutory limits on the statesâ expenditures of the federal CCDF funds that they receive. These include:
1. States must spend no more than 5% of their CCDF funds on administration
2. States must spend at least 4% of their CCDF funds on efforts to improve the quality of child care.
3. States must spend at least 70% of their Mandatory and Matching funds of families receiving TANF, transitioning from TANF, or at-risk of becoming eligible for TANF.
4. States may only serves families whose parents are working or in getting an education or in training, or families whose children are receiving protective services.
5. States may only serve families whose income level does not exceed 85% of the state median income for a family of the same size.
6. States must certify that they have applicable licensing processes for child care facilities. [15]
One of the aims of the Clinton welfare reforms was to cutback on simple subsidies and instead concentrate federal money on incentives programs designed to encourage employment and education. In accordance with this, the CCDF program increased federal child care funding by 75 percent. The financial responsibility of the states decreased, but child care spending has been incentivized by the federal government, and many states responded. Additionally, though preference is given to welfare recipients, child care subsidies are available to a broader range of low-income parents. [16]
*Evidence of Increased Employment*Assuming that increased employment was the main goal of recent welfare reforms, research findings have validated policy makersâ claims. Several studies support the conclusion that child care subsidies have a significant positive impact on parental employment, particularly for women. Simulations done by Connelly in 2001 showed that welfare recipiency was reduced by 10 percent when child care was subsidized 50 percent for women with incomes below the median, and employment was increased by more than 25 percent. [17] A similar conclusion was found by Averett et al. [18]
Additionally, a study by Blank in 2000 found that " the elasticity of labor force participation among mother with children under 13 to child care costs is between -.05 and -.35, with consistently larger estimates for less skilled mothers." [19] This means that as child care costs increase, labor force participation among mothers decreases, presumably because they cannot afford child care for their children. The logical corollary to this finding is that lowering child care costs, presumably through subsidies, increases labor force participation.
However, there are challenges to the interpretations of these findings. As with any type of regression, there is a danger that important variables may have been excluded from the analysis, and that the perceived causation is actually correlation caused by the presence of another, missing, variable. In this case, Blank points out that it is difficult to separate the effects of the 1990s reform from its historical and economic context. The economy was undergoing a period of substantial and sustained growth. Welfare rolls had decreased significantly prior to the implementation of the 1996 reforms. There was also a rising labor force participation rate among single mothers with children, and by 1998 the poverty rate was at a historic low among single mothers. [20] The extent to which the effects of welfare reform, and child care subsidies in particular, can be extracted from this larger macroeconomic context remains somewhat ambiguous. Still, most scholars acknowledge that the basic data indicates some degree of correlation that should not be overlooked. This conclusion begs two questions: first, how many people are receiving the subsidies and thereby presumably seeing gains in employment? Second, beyond employment, how well have the subsidies improved the economic circumstances of people receiving them? These two questions will provide the topics for the following sections.
*The Breadth of Child Care Subsidy Policy: Who is left out?*One of the most obvious weaknesses of child care subsidies is the small percentage of families they reach. In 1990, only 18 percent of working poor families received child care subsidies. The CCDF is a capped entitlement with no obligation to serve all eligible families. In recent years, the Fund has served an estimate 12-15 percent of all eligible children. The CCDF also provides a subsidy of up to one year for welfare leavers who are employed. Yet in most states fewer than 30 percent of welfare leavers with young children receive this benefit. [21]
Another reason that child care subsidies fail to reach so many eligible parents is the process of navigating the child care subsidy system. The diagram below, taken from the Urban Institute, illustrates comparatively easy and hard processes that an applicant may face, depending on how their state laws are constructed. [22]
Figure 1:
Another critical factor is that many parents, single mothers in particular, choose to forgo the subsidies in lieu of informal child care. Often, this is a choice made out of necessity, as many working poor parents have job schedules that do not coincide with typical employment hours. Alternately, sometimes it is a choice made out of ignorance of the existence of subsidies. Finally, sometimes it is a conscious choice. Low-income parents who choose to use informal child care typically site familiarity and flexibility as key factors in their decisions. [23]
Another issue that affects the number of eligible mothers and families who receive subsidies is the laws governing those subsidies in their particular state. The federal guidelines were given in Section III of this paper, but the states have the power to set more specific guidelines regarding exactly who qualifies and how many people may receive assistance. As previously mentioned, child care subsidies are capped, and states are under no federal obligation to serve all those who are eligible. Currently, only half of all states require that all eligible families receive the subsidies. In addition, a GAO study found that from January of 2001 through April of 2003, twenty-three states made changes that decreased the availability of assistance. The most common types of alterations were to change income eligibility, increase co-payments, stop enrolling new families and start waiting lists. [24]
In sum, when all of these factors are combined, the total effect of child care subsidies on the population of single mothers seems relatively small. While the next section will address whether or not those who receive the subsidies are actually better off, it is extremely important to remember that the vast majority of those eligible for the subsidies receive no assistance at all on child care costs.
*The Depth of Child Care Subsidy Policy: Are parents who receive the subsidies better off? *While there is a statistically significant correlation between child care subsidies and employment, Blau points out that there may be a self-selection bias inherent in this correlation. His assertion, which follows, is in part based in Henleyâs analysis of parental preference for formal versus informal child care.
" For a wide range of plausible values of the parameters and variables, a child care subsidy that is a given proportion of the child care price generates many more hours worked per dollar of government expenditure than a wage subsidy that is the same proportion of the wage, but it is the reluctance of many mothers to use paid care that makes a child care subsidy a more cost effective method of increasing employment." [25]
Another important factor is the length of the subsidy. Currently, there is a one year child care subsidy for welfare leavers. This policy assumes that after one year of employment, parents will be able to pay market rates for child care. However, what data is available suggest that only one-half to two-thirds of all welfare leavers post higher incomes after leaving the program. [26] With regard to the market rate for child care, data shows that welfare recipients with small children who do not receive subsidies spend approximately 25 percent of their budget on child care. Low-income married mothers spend approximately 9 percent, and low-income single mothers spend approximately 13 percent. [27] If women become employed because of the subsidies, but then lose those same subsidies precisely because they have been employed, these women may actually be made worse off by this Catch-22 policy, and end up back in the welfare system.
This can also be problematic, because the 1996 PRWORA reforms limited the total amount of time a person can be in the welfare system. A 1997 estimate stated that 40 percent of the welfare recipients on the rolls in 1996 would likely reach the limit of the time allotment. This represents two million families and 3.8 million children. [28] The long-term effects of less public support and more hours of employment on the economic well-being of low-income families is still uncertain. Data indicates that the bottom quintile of single mother families experienced an income loss in real terms from 1995 to 1997. It is also particularly telling that in 1998, the number of persons leaving public assistance was higher than the number of persons leaving poverty. [29] This strongly suggests that child care subsidies, as well as the welfare system as a whole, have been ineffective in helping to provide a secure future for those who leave the program.
*Policy Recommendations and Conclusion *There is a long, turbulent history of federal funding for child care subsidies. In general, this funding is continually increasing in real terms. This increase is a positive development insofar as the subsidies address a need that is felt by large numbers of lower-income and poverty-level families, particularly those headed by women. Clearly, the link between child care and maternal labor force participation suggests the child care subsidies are a necessary part of the process.
However, this paper also addressed the shortfalls of child care subsidies, such as reliance on informal care, irregular work schedules, and employment requirements. If TANF recipients were given greater choice and flexibility in the type of assistance they receive, some of these problems could be alleviated. For example, mothers whose irregular work schedules prevent them from being able to enroll their children in formal day care, thus making them ineligible for a subsidy, could instead take a wage subsidy which would allow them discretionary income with which to make alternative child care arrangements.
A basic recommendation is that child care subsidies should be fully funded and made more accessible. The small portion of eligible families receiving them does not nearly constitute a successful policy, and also does not allow for a thorough understanding of the relationship between the subsidies and a familyâs financial situation. Another important, if obvious, recommendation is to minimize the bureaucracy in the subsidy process. The 1996 PRWORA reform attempted to do this, but all too often individuals must continually deal with paperwork and bureaucracy as their situations change. For low-income workers, merely taking the time to navigate through the system can be extremely costly.
Most importantly, the government needs to alter the way it understands the goals of the welfare system. Employment is certainly a necessary first step towards self-sufficiency, but the two cannot be equated. As mentioned earlier, a majority of welfare leavers report higher earnings one year after leaving the welfare system. However, this means that there is a significant minority that actually sees a decrease in income by becoming gainfully employed. Employment brings with it new expenses, and child care is a large one. When the government provides child care subsidies for only one year following a familyâs exodus from the system, it assumes that families can pay market rate by year two. This is simply impractical.
In a larger sense, policy makers should avoid focusing exclusively on the correlation between child care subsidies and employment statistics such as wages. Instead, they should devote increased attention to the correlation of child care subsidies with disposable income or some other alternate measure of standard of living. Child care subsidies within the context of the welfare system will only be truly effective when they are approached not simply as a means to employment or a higher income, but as a means to a better life.
fn1. Cohen, Abby J. " A Brief History of Federal Financing for Child Care in the United States." The Future of Children. FINANCING CHILD CARE Vol. 6 No. 2 Summer /Fall 1996.
fn2. Roseman, Marilyn. " Quality Child Care: At Whose Expense?" Early Childhood Education Journal. Volume 27 No. 1 September 1999: pages 5-11.
fn3. Knott, Jack and Diane McCarthy. " Foundations, Public Policy and Child Care." Center on Philanthropy and Public Policy: University of Southern California: August 2003.
fn4. Cohen, Abby J. " A Brief History of Federal Financing for Child Care in the United States." The Future of Children. FINANCING CHILD CARE Vol. 6 No. 2 Summer /Fall 1996.
fn5. Head Start was one of the first programs to combine the goals of parent employment and child development. It was based on the premise that a childâs early development is crucial, and positive interventions can produce substantial benefits later in life. The program, which continues to exist, is free to parents, and 90% of the children served by each center are required to be below the poverty line. Head Start is also unique in that was centrally and intentionally designed, meaning that agencies which receive the funds are actually Head Start Programs, rather than a multiplicity of non-profit organizations. Head Start received funding since its inception, but was never made an entitlement program, and therefore requires continued reauthorization by Congress, which makes it vulnerable to cuts in spending.
fn6. Cohen, Abby J. " A Brief History of Federal Financing for Child Care in the United States." The Future of Children. FINANCING CHILD CARE Vol. 6 No. 2 Summer /Fall 1996
fn7. Lynn, LE. " Social Services and the State: The Public Appropriation of Private Charity." Social Science Review, Harris School of Public Policy, 2002. http://harrisschool.uchicago.edu/pdf/wp_01_13.pdf
fn8. Cohen, Abby J. " A Brief History of Federal Financing for Child Care in the United States." The Future of Children. FINANCING CHILD CARE Vol. 6 No. 2 Summer /Fall 1996
fn9. McLanahan, Sara, Annemette Sorensen, and Dorothy Watson. 1989. " Sex Differences in Poverty 1950-1980." Signs: Journal of Women in Culture and Society 15(11): 102-122.
fn10. Pearce, Diana M. " How Work Supports Impact Family Budgets: An Analysis of the Interaction of Public Policies and Wages." University of Washington. July, 2004.
fn11. Cohen, Abby J. " A Brief History of Federal Financing for Child Care in the United States." The Future of Children. FINANCING CHILD CARE Vol. 6 No. 2 Summer /Fall 1996
fn12. Blank, Rebecca M. " Fighting Poverty: Lessons from Recent U.S. History." Distinguished Lecture on Economics in Government. University of Michigan, Presented at the annual meeting of the Allied Social Science Associations on January 8, 2000.
fn13. Blau David, and Erdal Tekin. " The Determinant and Consequences of Child care Subsidy Recipt by Low-Income Families." Department of Economics University of North Carolina, Chapel Hill. January 2001. Revised version of a paper presented at the Conference on Incentive Effects of Tax and Transfer.
fn14. Department of Health and Human Services. " The Child Care and Development Fund (Fiscal Years 2004 â 2005)." http://www.acf.dhhs.gov/programs/ccb/geninfo/ccdf04_05desc
fn15. Department of Health and Human Services. " The Child Care and Development Fund (Fiscal Years 2004 â 2005)." http://www.acf.dhhs.gov/programs/ccb/geninfo/ccdf04_05desc
fn16. Henly, Julia R. and Sandra Lyons. " The Negotiation of Child Care and Employment Demands Among Low Income Parents." Journal of Social Issues, Vol. 56. No 4, 2000 pp.683-706.
fn17. Connlley Rachel, and Jean Kimmel. " The Effect of Child Care Costs on the Labor Force Participation and Welfare Recipiency of Single Mothers: Implicatoins for Welfare Reform." January 2001.
fn18. Avertt, S.L, H.E. Peters and D.M. Waldman. " Tax Credits, Labor Supply, and Child Care." The Review of Economics and Statistics, 1 February 1997, vol. 79, no. 1, pp. 125-135(11).
fn19. Blank, Rebecca M. " Fighting Poverty: Lessons from Recent U.S. History." Distinguished Lecture on Economics in Government. University of Michigan, Presented at the annual meeting of the Allied Social Science Associations on January 8, 2000.
fn20. Blank, Rebecca M. " Fighting Poverty: Lessons from Recent U.S. History." Distinguished Lecture on Economics in Government. University of Michigan, Presented at the annual meeting of the Allied Social Science Associations on January 8, 2000.
fn21. Blau David, and Erdal Tekin. " The Determinant and Consequences of Child care Subsidy Recipt by Low-Income Families." Department of Economics University of North Carolina, Chapel Hill. January 2001. Revised version of a paper presented at the Conference on Incentive Effects of Tax and Transfer
fn22. Adams, Gina, Kathleen Snyder and Jodi Sandfort. " Navigating the Child Care Subsidy System: Policies and Practices that Effect Access and Retention." The Urban Institute. March 01, 2002. http://www.urban.org/url.cfm?ID=310450
fn23. Henly, Julia R. and Sandra Lyons. " The Negotiation of Child Care and Employment Demands Among Low Income Parents." Journal of Social Issues, Vol. 56. No 4, 2000 pp.683-706.
fn24. GAO. " Child Care: Recent State Policy Changes Affecting the Availability of Assistance for Low-Income Families." May 2003. GAO-03-588.
fn25. Blau David, and Erdal Tekin. " The Determinant and Consequences of Child care Subsidy Recipt by Low-Income Families." Department of Economics University of North Carolina, Chapel Hill. January 2001. Revised version of a paper presented at the Conference on Incentive Effects of Tax and Transfer. Page 7.
fn26. Blau David, and Erdal Tekin. " The Determinant and Consequences of Child care Subsidy Recipt by Low-Income Families." Department of Economics University of North Carolina, Chapel Hill. January 2001. Revised version of a paper presented at the Conference on Incentive Effects of Tax and Transfer. Page 9.
fn27. Henly, Julia R. and Sandra Lyons. " The Negotiation of Child Care and Employment Demands Among Low Income Parents." Journal of Social Issues, Vol. 56. No 4, 2000 pp.683-706.
fn28. Duncan, Greg, Kathleen Mullan Harris and Joane Boisjoly. " Time Limits and Welfare Reform: New Estimates of the Number and Characteristics of Affected Families." JCPR Working Paper. 1. May 1, 1997.
fn29. Blank, Rebecca M. " Fighting Poverty: Lessons from Recent U.S. History." Distinguished Lecture on Economics in Government. University of Michigan, Presented at the annual meeting of the Allied Social Science Associations on January 8, 2000.